An analysis of SCO Group

I might own SCOX at some point, but for now I’d be inclined to stay on the sidelines since it looks too early to buy into the story. For the time being, I have a negative bias on the stock until it reaches a more attractive entry level. The stock has been quite volatile recently, and I expect more volatility for a while. It broke a key level of support around $13.5-ish, establishing a downtrend and putting in place a 5-month top. SCOX is looking to test the next important area of chart support -- at around $8.5 to $9 -- so, I would hold off starting a long position for now.

Longer-term, it's possible that the stock could reach the low-to-mid $20s in the next 12 to 18 months. But a solid up-move

in SCOX would depend on a number of factors: increasing Linux adoption rates, growing IP licensing revenues, and the outcomes of various pieces of litigation SCO has pending with other companies (specifically award and/or settlement amounts). If these things happen in SCO Group's favor, then it's possible the stock price could move up into the $20-25 range -- which represents around 15x-16x the consensus' fiscal year 2004 EPS estimate of $1.62.

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